What Is A Franchise Fee?

Posted by FranSave on January 24, 2022

If you’ve read our other posts, you’ve no doubt seen us discuss something called a “franchise fee.” You might be wondering what precisely that is. Any worthwhile business endeavor is bound to have monetary investments, and this is one of the more important ones for prospective franchisees to understand.

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FranSave seeks to demystify and simplify all aspects of franchising, including all relevant fees. Armed with that assurance, let’s define and understand franchise fees, which are a part of your total investment when you purchase a franchise.

Defining Franchise Fees

According to Justin Wick from Franchise News, a franchise fee is a “one-time payment that a franchisor collects from a franchisee . . . the final steps toward investing in a franchise brand – and they are often the final turning point for franchisors to hand over a franchise to a prospective franchisee.”

So, whenever you’re ready to ink a deal with a parent franchise company (i.e., Lawn Doctor, Grease Monkey, Mathnasium, etc.) the franchise fee is part of the price of entry. What are you paying for exactly? You’re demonstrating your commitment to purchase the franchisor’s business model, including the privilege to adopt it as your business.

Once your business is running, hopefully earning you significant revenue, you would also contribute a portion of it (a royalty fee, which is not the same as the initial franchise fee) to the franchisor generally on a monthly basis.

Franchisors also charge a monthly marketing fee to promote your business and to help you and your franchise become profitable, so they can  capitalize on any subsequent royalty fees.

Typical Range of Fees

As a rule of thumb, franchise fees range from $20,000 to $50,000, but several examples surpass that interval. Some smaller service businesses are only about $10,000. There is also something called a “Master Franchise,” which typically commands a starter fee of $100,000 or more.

Master franchises may have a steep entry barrier, but they also earn substantially more revenue than small franchise operations.

Be mindful that every specific franchise opportunity has its unique fees and up-front costs, so the initial franchise investment fee is only part of the story. This is yet another reason why it’s critical that you and an attorney carefully read and acknowledge the fine print of the entire Franchise Disclosure Document (especially Item 5), and Items 6 and 7 and the Franchise Agreement.

FranSave wants aspiring franchisees to be fully aware of what to expect when entering a franchise arrangement. Yes, there are several parts to the fee structure – some that are one-time costs and others like marketing and technology fees that are paid monthly but you don’t need to be intimidated if you understand the each component and how the process works. Most of the time, being a successful franchisee depends on your commitment to success and to following the business model, particularly when clearing through all the initial fees and hurdles. Remember that it’s an investment and not a get-rich-quick scheme.

We highly encourage anybody interested in franchise businesses to contact us any time. There is no cost to you for our time and effort to match you with the right franchisor.  Our business model revolves around coaching and consultation, and we do not earn anything unless and until you and your franchisor strike a deal. And then, we are paid by the franchisor, not the franchisee. Call us at 844-476-7776 to learn more.

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This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. If you are a resident of one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your jurisdiction. Franchise offerings are made by Franchise Disclosure Document only.

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